Non-compliance to SAP on local governments in Indonesia: The impact of internal control weaknesses in internal control in accounting and financial reporting and regional complexity

Abstract

This study attempts to analyze the impact of internal control weaknesses in accounting and financial reporting as well as local government complexity on the non-compliance with Government Accounting Standard (SAP) implementation in Indonesian local governments. Using secondary data from the audit results from the Supreme Audit Board (BPK) on Local Government Financial Reports (LKPD), this study finds that there are still non-compliance with SAP in a number of local governments in Indonesia since the application of accrual-based accounting was required in 2015. On the bright side, the number of non-compliance continues to decrease from year to year. Further, this study reveals that the weakness of internal control in accounting and financial reporting as well as regional complexity has a positive effect on non-compliance with SAP implementation. This research encourages local governments to evaluate and make improvements to the existing internal control weaknesses and accommodate the high complexity level through the development of adequate accounting competencies as well as effective and efficient accounting and financial reporting systems. Thus, local governments can produce LKPD that are compliant with SAP with more reliable and relevant financial information.

Analysis of ERP Critical Failure Factors: A Case Study in an Indonesian Mining Company

“…Company XYZ has implemented ERP in its head office and all business units since 2016 to support its digitalization transformation solutions. The company selected SAP, which is widely used by large companies in Indonesia (Muhtar 2022). SAP includes business processes derived from best practices that are readily used by the company.…”